U.S. fund manager Peter Tchir sent a note to his clients entitled: “Did Someone Hit the Sell Everything Button?” His biggest concern (and everyone’s) is the sudden change in behavior – panic selling. Younger money managers likely haven’t experienced the ‘no bid’ scenario. This occurs when the herd wants only to sell, not to buy…hence trade is all one-sided, or rather there is not trade.
Consider my past rant about the lack of liquidity of the hottest sectors of late (private equity, infrastructure investments) – and the impact of these trends in the event institutional and retail investors need to raise cash. They’ll sell what they ‘can’ sell; publicly listed securities. The sad truth is it’s become so expensive and bothersome to be a public company, the sheer number of publicly listed companies has been shrinking.
This panic then is nirvana for short-sellers (an activity that should be illegal) as the number of asks far outnumbers the bids. Relief will come when everyone’s sold what they can and the shorts have to cover. Could be a wait.